Question: Husband died in 2015 at age 85. Later that year, the surviving spouse (sole beneficiary) did trustee-to-trustee transfer to her Roth IRA. She did not have a Roth IRA prior to that.

Wife, age 90, took distributions in 2016 and 2017. Are those qualified? Are they subject to tax and/or penalty?

Thank you,

Erin

Answer:

Erin,

It is very unlikely that the wife will be subject to income tax or penalties on the Roth IRA distributions. Any contributions or funds converted by her husband would be distributed to her both tax and penalty-free. The rules say that these types of funds are distributed first from a Roth IRA.

That would leave only the Roth IRA earnings as potentially taxable, and those funds are not distributed until all other Roth IRA funds are gone. For earnings to be tax and penalty free, there must be a qualified distribution of earnings. The wife is over age 59 ½, so any distribution she takes from her Roth IRA will be qualified as long as a five-year holding period is satisfied. There is some good news here. As the spouse, the wife takes over her husband’s five year holding period; it does not restart upon his death. If the five year holding period is satisfied, everything in the Roth IRA, including earnings, will be distributed tax and penalty free.

Question:

Hello,

I just attended your 2-day program in Orlando, FL. Can a client make new contributions to a Roth IRA conversion account?

The client retired in 2017, he converted a small traditional IRA to a Roth IRA in 2017. Now that his income is much lower he wants to contribute to that Roth for both 2017 and 2018. Can he do that? Or, do contribution Roths need to be kept separate from conversion Roths?

Thank You!!

Jim

Answer:

Hi Jim,

Thanks for attending our 2-day workshop in Orlando! We hope you enjoyed it. Your client can go ahead and make both 2017 and 2018 contributions to the same Roth IRA that holds the converted funds. There is nothing that requires that Roth contributions and conversions be kept separate and no tax advantage that can be gained by doing so.